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    A Value Menu for Mc Donald s

    Pershing SquareCapi t a l Managem ent

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    1

    DISCLAIMER

    Pershing Square Capital Management's ("Pershing") analysis and conclusions regarding

    McDonald's Corporation ("McDonald's") are based on publicly available information. Pershing

    recognizes that there may be confidential information in the possession of the Company and its

    advisors that could lead them to disagree with the approach Pershing is advocating.

    The analyses provided include certain estimates and projections prepared with respect to, among

    other things, the historical and anticipated operating performance of the Company. Such

    statements, estimates, and projections reflect various assumptions by Pershing concerning

    anticipated results that are inherently subject to significant economic, competitive, and otheruncertainties and contingencies and have been included solely for illustrative purposes. No

    representations, express or implied, are made as to the accuracy or completeness of such

    statements, estimates or projections or with respect to any other materials herein. Actual results

    may vary materially from the estimates and projected results contained herein.

    Pershing manages funds that are in the business of trading - buying and selling - public securities.It is possible that there will be developments in the future that cause Pershing to change its position

    regarding the Company and possibly reduce, dispose of, or change the form of its investment in the

    Company. Pershing recognizes that the Company has a stock market capitalization of

    approximately $42bn, and that, accordingly it could be more difficult to exert influence over its

    Board than has been the case with smaller companies.

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    2

    Table of Contents

    C. McOpCo Financial Analysis 74

    B. PF McDonald's Financial Analysis 66

    A. Pershings Proposal: Assumptions 59

    Appendix 58

    V. Developing a Response to the Company 43

    IV. Company Response to Pershing 39

    III. Pershings Proposal to McDonald's: McOpCo IPO 23

    II. Pershings View of McDonald's 11

    I. Overview of McDonald's 3

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    I. Overview of McDonald's

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    4

    Persh ing s Invo lvement w i t h McDonald s

    On Sept em ber 22nd, Pershing Square Capi ta lManagement ( Persh ing ) presented a proposa l for

    inc reas ing shareholder va lue ( the Proposal ) toMc Donald s managem ent

    f Pershing commends McDonalds management for its strong operational

    execution over the past two years

    f Pershing appreciates the willingness and openness of McDonalds

    management to discuss the Proposal

    f Management has taken our Proposal seriously our Proposal was

    presented to McDonalds Board of Directors

    Persh ing had a fo l low -up meet ing w i th Mc Donald smanagement on Oc t ober 31 when t he Companycom munica t ed i t s response to our P roposa l

    Persh ing is pleased to have the oppor t un i ty t o share thede ta i l s o f our Proposa l w i th t he b roader i nves tm entc o m m u n i t y

    I. Overview of McDonalds

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    5

    Review of Mc Donald s

    World s la rges t foodserv ic e f ranch isor and re t a i le r

    f $42 billion equity market value

    f $55 billion in estimated system wide sales

    f 32,000 system wide restaurants, globally

    f Serves 50 million customers daily in 119 countries

    Everyday 1 out of 14 Americans eats at a McDonalds

    One of the w or ld s most rec ognized brands

    f Consistently named in the top 10 global brands along with Coke and Disney

    One o f t he la rgest re t a i l p roper t y ow ners in the w or ld

    f Estimated owned and controlled real estate market value of $46 billion (1)

    f Estimated 18,000 restaurants where McDonalds owns land and/or building

    Sign i f i cant f ree c ash f low bus iness

    ________________________________________________

    (1) Based on Pershings assumptions. See page 64 in the appendix.

    I. Overview of McDonalds

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    6

    His to r ic a l F inanc ia l Per fo rmanc e

    McDonald s His tor ica l Revenue and EBITDA Per formanc e (1 )

    ($ in millions)

    Following declines in same-store sales and profitability in 2001 and 2002, Management has improvedoperations through product innovation, capital discipline and strong execution. As a result, the Companys

    profitability has increased.

    Same-storeSales Growth 0.6% (1.3%) (2.1%) 2.4% 6.9%

    I. Overview of McDonalds

    $5,183$4,512$3,997$4,041$4,144

    $19,065

    $17,141$15,406$14,870$14,243

    $0

    $5,000

    $10,000

    $15,000

    $20,000

    2000 2001 2002 2003 2004

    Revenue/EBITDA

    24.0%

    25.5%

    27.0%

    28.5%

    30.0%

    EBITDAMargin

    EBITDA Revenue EBITDA Margin________________________________________________

    (1) EBITDA is adjusted for certain non-recurring and non-cash items.

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    7

    Hist or ic a l Financ ia l Per form anc e (Cont d)

    Hist or ic al Pre-Tax U nlevere d Free Cash Flow (1 ) Per formance($ in millions)

    As a result of the Companys improved capital allocation, pre-tax unlevered free cash flow hasincreased from a five-year low of $2.0 billion in 2002 to $3.5 billion in 2004.

    _______________________________________________

    (1) Denotes Adjusted EBITDA CapEx. Adjusted EBITDA is adjusted for certain non-recurring and non-cash expenses.

    $2,199$1,994

    $3,205$3,483

    $2,134

    15.4%14.4%

    12.9%

    18.7% 18.3%

    $0

    $1,000

    $2,000

    $3,000

    $4,000

    2000A 2001A 2002A 2003A 2004A

    EBITDA

    CapEx

    10%

    14%

    18%

    22%

    26%

    Margin(%)

    EBITDA CapEx Margin %

    I. Overview of McDonalds

    2000 2001 2002 2003 2004

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    8

    St ock Pr ice Per fo rmanc e

    McDonald s Stoc k Pr ice Performanc e

    ($ per share)

    Although McDonald's stock has rebounded from its 2003 lows, it has been range bound in the low$30s for the past five years and is significantly off of its high of $48 per share reached in 1999.

    High of $48.32

    11/12/99

    $10.00

    $20.00

    $30.00

    $40.00

    $50.00

    11/12/99 07/12/00 03/12/01 11/10/01 07/11/02 03/11/03 11/09/03 07/09/04 03/09/05 11/07/05

    I. Overview of McDonalds

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    9

    0

    50

    100

    150

    200

    250

    300

    350

    11/10/00 06/01/01 12/21/01 07/12/02 01/31/03 08/22/03 03/12/04 10/01/04 04/22/05 11/11/05

    McDonald's QSR Comp S&P 500(1)

    5-Year Indexed St oc k Per form ance

    5-Year Indexed Stoc k Per formanc e

    Over the past five years, McDonalds has only slightly outperformed the S&P 500 while its QSRpeer group has vastly outperformed the index.

    ________________________________________________

    (1) Includes YUM and WEN.

    QSR

    MCD

    S&P

    McDonald's S&P 500 QSR Index

    5 Year Indexed Performance 2.4% (9.6%) 177.3%

    I. Overview of McDonalds

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    10

    1 5 . 6 x

    2 0 . 4 x

    1 6 . 7 x

    0 . 0 x

    5 . 0 x

    1 0 . 0 x

    1 5 . 0 x

    2 0 . 0 x

    2 5 . 0 x

    3 0 -D a y A v e ra g e T ra ilin g W E N Y U M(1 )

    8.7x

    9.3x

    8.9x

    7.5x

    8.0x

    8.5x

    9.0x

    9.5x

    10.0x

    30-Day Average Trailing WEN YUM(1)

    Mc Donald s versus i t s Peers

    ________________________________________________

    (1) McDonalds stock price is based on a 30-day average trailing price as of 11/11/05.

    EV / 06 E EBITDA

    P / 06 E EPS

    Despite McDonaldsstrong real estate

    assets, number oneQSR marketposition and leadingbrand, McDonaldstrades at a discount

    to its peers.

    We believe thisdiscount is due to afundamentalmisconception

    about McDonaldsbusiness.

    Long-TermEPS Growth 9% 12% 12%

    I. Overview of McDonalds

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    II. Pershings View of McDonald's

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    12

    Mc Donald s : How t he Syst em WorksII. Pershings View of McDonald's

    fFranchisor: Franchises brand and collects fee

    fOperator: Operates 9,000 McDonalds restaurants

    fLandlord: Buys and develops real estate and leases to itsfranchisees

    fReal Estate and Franchise estimated pre-tax ROI of 17.5%(1):

    fFranchise Fee: 4% ofrestaurant sales

    fRent: greater of aminimum rent or a percentage

    of restaurant sales (current

    avg. ~9% of sales)

    fFranchisee bears all

    maintenance capital costs

    ________________________________________________

    (1) Illustrative return based on Pershings assumptions for the cost of land and building and approximate average unit sales in 2004.

    Landlord, Franc hisor , Rest aurant Operat or Franc hisees

    Cost of Land $650k

    Cost of Building 650k

    Total Cost $1,300k

    Est. Average Unit Sales $1,750k

    Rent as a % of Sales 9.0%

    Franchise Income as % of sales 4.0%

    Rental Income $158ranc se ncome

    Total Income $228

    Unlevered Pre Tax ROIC 17.5%

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    A Landlord, Franc hisor and Restaurant Operat or

    fMcDonalds controls substantially

    all of its systemwide real estate

    f Estimated 11,700 restaurants

    where McDonalds owns both the

    land and buildings and 7,000

    restaurants where McDonalds

    owns only the buildings (1)

    f Estimated $1.3 billion of income

    generated from subleases

    f Estimated real estate value: $46billion or ~94% of currentEnterprise Value (2)

    f Approximately 32,000

    restaurants where

    McDonalds receives 4% of

    unit salesfReported financials have

    overstated margins due to

    a lack of transfer pricing

    Currently not

    charged a franchise

    fee

    Currently not

    charged a market

    rent

    ________________________________________________

    (1) Assumes that McDonalds owns the land and buildings of 37% of its system wide units and owns the buildings of 22% of its system wide units.(2) Valuation based on Pershing estimates. See page 64 for more detail on real estate valuation.

    Franchisor Restaurant Operator Landlord

    Real Es t a t e and Franc h ise Bus iness Mc OpCo

    II. Pershings View of McDonald's

    f Approximately 9,000 Company-

    operated restaurants

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    Charac t e r is t ic s o f Cash Flow St reams

    Franchisor RestaurantsLandlord

    Real Esta t e and Franch ise Bus iness

    Minimalf Triple net leases

    Lowf Limited remodel subsidies as

    well as corporate capex

    Highf Significant maintenance capex

    Maintenance

    CapitalRequirements:

    Very Stable / Minimal Risk

    f Generates the greater of a

    minimum rent or a % of sales

    (current average ~ 9%)

    Stable / Low Risk

    f Low operating leverage

    f Diverse and global customer

    base

    Medium Risk

    f High operating leverage

    f Sensitivity to food costs

    RiskProfile

    70%90% Margins

    f Some real estate

    development expenses

    30%50% Margins 7%10% Margins(1)

    f High food, paper and labor costs

    f Rent

    f Franchise fee

    TypicalEBITDAMargin:

    Typical averagecost of capital(2 )

    ________________________________________________

    (1) Typical margins are illustrative restaurant EBITDA margins and assume the payment of a market rent and franchisee fee, similar to a franchisee.(2) Typical betas are Pershing approximations based on selected companies Barra predictive betas. Average cost of capital estimates are illustrative estimates based on average asset betas.

    Minimal: 5.75%-6.5%

    f Real estate holding companiestypical asset beta: ~.40

    f Hard asset collateral

    Low: 6.5%-7.5%

    f Choice Hotels, Coke and Pepsi

    typical asset beta: ~.50-.60

    f Highly leveragable

    McOpCo

    Medium: 8%-9%

    fMature QSR typical asset

    beta: ~.80-.90

    II. Pershings View of McDonald's

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    Adjust i ng for Market Rent and Franchise Fees

    2004 Tot a l EBITDA Adjus t ed forMarket Rent and Franchise Fees

    55%

    2004 Tot al EBITDAAs Repor ted

    In 2004, McDonalds company-operated restaurants appeared to contribute 46% of total EBITDA.However, once adjusted for a franchise fee and a market rent fee, McOpCo constituted only 22% of totalEBITDA, with the higher multiple Real Estate and Franchise businesses contributing 78% of total EBITDA.

    ________________________________________________

    Note: The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonalds management hasindicated this is a conservative assumption regarding the Real Estate and Franchise business. Analysis excludes $441 mm of non-recurring other net operating expenses.

    .

    78%

    22% McOpCo

    Real Est at e

    and Franc hise

    2004 EBITDA %McOpCo $2.4bn 46%

    Real Estate and Franchise 2.8bn 54%

    Total $5.2bn 100%

    2004 EBITDA %McOpCo $1.1bn 22%

    Real Estate and Franchise 4.0bn 78%

    Total $5.2bn 100%

    46%

    54%

    McOpCo

    Real Est at e

    and Franc hise

    II. Pershings View of McDonald's

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    Adjust i ng for Market Rent and Franchise Fees(Contd)

    2005E Tota l EBITDA Capex Ad justedfor Market Rent and Franchise Fees

    2005E Tota l EBITDA CapexAs Repor ted

    Once adjusted for market rent and franchise fees, McOpCo would be contributing only 14% of totalEBITDA-Maintenance Capex, with the Real Estate and Franchise business contributing 86% of totalEBITDA-Maintenance Capex ,based on FY 2005E projections.

    ________________________________________________

    The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonalds

    management has indicated this is a conservative assumption regarding the real estate and franchise business. In addition, we note that 2005E maintenance capexincludes certain one-time capital expenditures related to systemwide remodeling program. Please see appendix for full reconciliation.

    '05 EBITDA-

    Maint. Capex %McOpCo $1.9bn 47%

    PF McDonald's 2.2bn 53%

    Total $4.1bn 100%

    '05 EBITDA-

    Maint. Capex %McOpCo $0.6bn 14%

    PF McDonald's 3.5bn 86%

    Total $4.1bn 100%

    II. Pershings View of McDonald's

    53%47%

    McOpCo

    Real Est ate and

    Franchise

    86%

    14%

    McOpCoReal Est ate and

    Franchise

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    Hist or ic a l EBITDA by Business Type:

    Assuming 75% of G&A is allocated to the Real Estate and Franchise business, an allocation thatMcDonalds management indicates is conservative, we indicate below the EBITDA for McOpCo and theReal Estate and Franchise businesses, as depicted in the reported financials. We note that McOpCo hashistorically appeared to contribute approximately ~45% of consolidated EBITDA.

    Mc Donalds Consol idat ed EBITDA($ in millions)

    ________________________________________________

    Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A. Management has indicated this is a conservativeassumption regarding the Real Estate and Franchise business.

    RealEstate and

    Franchise~55%

    McOpCo

    ~45%

    $2,780$2,440$2,156$2,148$2,149

    $2,403$2,072

    $1,841$1,893$1,995

    $5,183$4,512$3,997$4,041$4,144

    $0.0

    $1.0

    $2.0

    $3.0

    $4.0

    $5.0

    $6.0

    2000 2001 2002 2003 2004

    Real Estate and Franchise McOpCo

    II. Pershings View of McDonald's

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    (1.1%) (10.6%) (7.9%) 14.0% 20.4%

    0.6% (1.3%) (2.1%) 2.4% 6.9% Same-store sales

    Hist or ic a l EBITDA by Business Type:

    Despite an economic recession in 2001-2003, significant dips in McDonalds system wide same-store sales growth and declines in McDonalds stock prices, the Real Estate and Franchise businesshas grown every year over the last five years.

    McDonalds Consol idated EBITDA($ in millions)

    ________________________________________________

    Notes:Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A.Assumes McOpCo pays franchise fees of 4% of sales and rent of 9% of sales.

    (0.5)% 0.1% 0.9% 12.6% 13.4% RE/Franchise Growth

    RealEstate andFranchise

    ~80%

    McOpCo Growth

    II. Pershings View of McDonald's

    $3,138 $3,142 $3,169 $3,568$4,046

    $1,006

    $1,137

    $900 $828$944

    $4,144 $4,041 $3,997$4,512

    $5,183

    $0.000

    $1.000

    $2.000

    $3.000

    $4.000

    $5.000

    $6.000

    2000 2001 2002 2003 2004

    Real Estate and Franchise McOpCo

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    $1.5 $1.6 $1.8 $1.9$2.1 $2.5

    $2.6 $2.7 $2.9$3.2 $3.1 $3.1 $3.2

    $3.6 $4.0$0.5 $0.5 $0.6 $0.6

    $0.7$0.7 $0.8

    $0.8$1.0

    $1.0 $1.0 $0.9 $0.8$0.9

    $1.1

    $0.0

    $1.0

    $2.0

    $3.0

    $4.0

    $5.0

    $6.0

    1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

    McOpCo

    Real Estate andFranchise

    Real Est at e and Franchise Business:

    Mc Donalds Consol idat ed EBITDA($ in billions)

    (15.6%) 30.5% 28.3% 16.9% 2.6% 54.3% 0.6% 5.2% 60.9% 5.0% (15.7%) (22.1%) (39.3%) 54.4% 29.1%Change in Year-EndStock Price:

    2.3% 18.1% (2.2%) 17.0% 14.1% 3.6% 6.3% 18.0% 5.1% (1.1%) (10.6%) (7.9%) 14.0% 20.4%McOpCoEBITDA Growth

    Real Estate & FranchiseEBITDA Growth:

    4.9% 11.7% 8.5% 10.4% 15.3% 4.0% 4.3% 10.1% 7.4% (0.5%) 0.1% 0.9% 12.6% 13.4%

    Based on Reported FinancialsBased on Pershing Assumptions

    ________________________________________________

    Notes:Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A.Assumes McOpCo pays franchise fees of 4% of sales and rent of 9% of sales.

    II. Pershings View of McDonald's

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    Hist or ic a l Perspect ives on Mc OpCo

    McDonald s d id not h is tor ica l ly opera te res taurants

    The Company in i t ia l ly entered t he business of operat ingrestaurant s only as a defensive measure

    f Limited number of restaurants

    The idea emerged that we should operate a base of ten or so stores as a

    company. This would give us a firm base of income in the event the

    McDonald brothers claimed default on our contract (1)

    --Ray Kroc / Founder

    Expans ion o f McOpCo uni ts f i rs t occ ur red in the la te 1960s

    f Veteran franchisees were approaching retirement and needed liquidity

    f McDonalds stock was provided as a tax-free exchange for the restaurants

    Some of our operators had tremendous wealth but no money. And we

    were using McDonalds stock that was trading at 25 times earnings tobuy restaurants for seven times earnings (2)

    --Fred Turner / Former President and CEO

    Turner rea l ized in the m id 70s tha t ow ning too m any McOpCouni ts w as not in t he best in t eres t o f the Company

    ________________________________________________

    (1) From Grinding It Out: The Making of McDonalds, p. 108.(2) FromMcDonalds: Behind the Golden Arches, pgs. 288 - 291.

    II. Pershings View of McDonald's

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    Super ior Franchisee Econom ic sII. Pershings View of McDonald's

    Running a McDonalds is a 363-day-a-year business and an owner/operator,with his personal interests and incentives, can inherently do a better job than a

    chain manager.(1)

    --Fred Turner / Former President and CEO

    Com pany Operat ed Franc hisee Operat ed

    St ruc tu re C-Corporation LLC / Partnership

    Taxes Corporate level tax No corporate level tax

    Leverage 10% - 30% 75% - 90%

    Levered Returns Low teens 40% and higher

    General m anager Salaried employee/ Owner / Entrepreneur

    corporate manager

    Illustrative Characteristics of Company Operated versus Franchisee Operated Restaurants (2)

    ________________________________________________

    (1) FromMcDonalds: Behind the Golden Arches, pgs. 288 - 291.(2) Illustrative leverage and equity return figures. Not based on company data.

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    III. Pershings Proposal to McDonald's: McOpCo IPO

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    Persh ing s Proposal : Mc OpCo IPO (c ont d)

    McOpCo

    f At the time of IPO, McOpCo signs

    market lease and franchise

    agreements with Pro Forma

    McDonalds (PF McDonalds)

    f Resulting Pro Forma McDonalds is a

    world-class real estate and franchise

    business

    McOpCo financials deconsolidated

    from PF McDonalds

    f Leverage is placed only on PropCo

    f FranCo is unlevered, maximizing its credit

    rating

    PropCo FranCo

    Pro Form a

    IPO 65%

    III. Pershings Proposal to McDonald's:

    McOpCo IPO

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    26

    McOpCo IPO:A Transformat ional Transact ion

    Sign i f icant va lue c reat ion fo r shareho lders

    f PF McDonalds would trade at an approximate 37%52% premium overwhere it trades today, in the range of approximately $4550 per share (1)

    Creates investor t ransparency

    f Deconsolidation provides investors with transparent insight into PF

    McDonalds profitability (60% EBITDA margins), attractive FCF profile

    (35% levered FCF margins) and world-class real estate/franchise assets

    f Separation of McOpCo highlights the significant value of rental income

    and franchise fees currently eliminated in consolidation

    Enhances management foc us and incent ives a t bo then t i t i es

    f Enhances ability to attract and retain top McOpCo management

    f Allows PF McDonalds management team to focus on new product

    innovation, improved marketing efforts, stronger real estate development

    programs and higher quality franchisee performance monitoring / training

    An IPO of McOpCo

    would have severalpositive strategicand financialimplications forboth Pro FormaMcDonalds as wellas McOpCo.

    III. Pershings Proposal to McDonald's:

    McOpCo IPO

    ________________________________________________

    (1) Based on recent stock price of $33 per share.

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    Standalone Pro Forma

    $ in millions FY 2006E FY 2006E

    Revenue $20,816 $7,393

    EBITDA 5,594 4,464

    EBITDA Margin 26.9% 60.4% 15% - 20%

    EBITDA-Capex 4,335 3,739

    EBITDA-Capex Margin 20.8% 50.6% 7.5% - 12.5%

    EBITDA-Maintenance Capex 4,651 4,025

    EBITDA - Maint. Capex Margin 22.3% 54.4% 10% - 15%

    FCF(1)

    3,059 2,440

    FCF Margin 14.7% 33.0% 5% - 10%

    A Transformat iona l Transact ion (Cont 'd)

    Improves operat ing and f inanc ia l met r ics a t every leve l

    f Significantly improves PF McDonalds EBITDA and free cash flow margins

    f Enhances return on capital and overall capital allocation for the PF McDonaldsf Improves ability of PF McDonalds to pay significant ongoing dividends

    ________________________________________________

    We note that CapEx projections are net of proceeds obtained from store closures.(1) Typical QSR margin based on Wall Street estimates for YUM! Brands and Wendys.

    III. Pershings Proposal to McDonald's:

    McOpCo IPO

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    A Transformat iona l Transact ion (Cont 'd)

    Al low s for a vo ice in McOpCo through governance

    f Given its 35% stake in McOpCo post spin-off, PF McDonalds will be able to

    elect several Board seats to the new entityf Governance affords visibility in McOpCo operations, which will help in:

    managing the McDonalds brand

    extending new products through the franchisee system

    remaining in touch with unit-level economics and issues

    Suppor t ed by h ighly s imi lar , succ essfu l precedent

    t ransac t ions

    f Coca Cola Company carved-out its owned bottling operations in 1986 in what is

    widely viewed as one of the most successful restructurings of all time

    f PepsiCo followed suit in a similar transaction in 1999, with unanimous support

    from the Wall Street research analyst community

    Al low s for an acc e lera ted McOpCo ref ranch is ing program

    Inc reases overa l l s ize of PF Mc Donald s invest or base

    f Strong potential to attract both dividend / income-focused investors and real

    estate-focused investors

    An IPO of McOpCo

    would have severalpositive strategicand financialimplications for bothMcDonalds as wellas McOpCo.

    III. Pershings Proposal to McDonald's:

    McOpCo IPO

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    Pro Forma Typical Mature

    QSR(1)

    TypicalReal EstateC-Corp

    ChoiceHotels

    2005E Operating Metrics:

    EBITDA Margins 60% ~15% - 20% ~70% - 80% 66% 23% 31%

    EBITDA CapEx Margins 50% ~7.5 % - 12.5% ~65% - 75% 61% 18% 27%

    EPS Growth 9% ~10% - 12% NA 16% 11% 9%

    Trading Multiples

    Adjusted Enterprise Value(2)

    /

    CY 2006E EBITDA ~8.5x - 9.5x ~13x - 16x 15.1x 12.3x 12.6x

    CY 2006E EBITDA CapEx ~12x - 15x ~17x - 20x 16.0x 15.5x 14.2x

    Price /

    CY 2006E EPS ~15x - 19x NA 24.3x 20.1x 18.8x

    CY 2006E FCF(3) ~16x - 20x ~20x - 25x 24.0x 20.8x 18.9x

    Leverage Multiples

    Net Debt / EBITDA ~0.5x - 1.8x ~5x - 10x 1.7x 0.0x NM

    Total Debt / Enterprise Value ~7.5% - 20% ~35% - 60% 11% 4% 4%

    High Branded Intangible Property

    Publ ic ly Traded Comparable Companies

    PF McDonalds operating metrics are much closer to a typical Real Estate C-Corporation or a highbranded intellectual property business such as PepsiCo or Coca-Cola than they are a typical mature QSR.

    ________________________________________________

    Stock prices as of 11/11/05. Projections based on Wall Street estimates.(1) Typical mature QSR based on YUM! Brands and Wendys.(2) Adjusted for unconsolidated assets.(3) FCF denotes Net Income plus D&A less CapEx.

    III. Pershings Proposal to McDonald's:

    McOpCo IPO

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    REITs: Typ ic a l Trad ing Mul t ip les

    We believe REITs trade in the range of 13x-17x EV/06E EBITDA, depending on the type ofreal estate and the businesses the properties support.

    ________________________________________________Based on Wall Street research estimates at the time of Pershings initial Proposal to the Company.

    EV / '06E Div. P / '06E P / '06E

    Company EBITDA Yield FFO AFFO

    Health Care 14.7x 6.3% 12.6x 13.3x

    Industrial 16.3x 4.2% 13.9x 17.2x

    Multifamily 17.0x 4.8% 16.6x 19.4x

    Office 15.2x 4.7% 13.8x 19.6x

    Regional Mall 16.3x 3.8% 14.2x 16.9x

    Self Storage 17.5x 3.8% 16.7x 18.3x

    Strip Center 15.5x 4.5% 14.4x 16.5x

    Triple Net Lease 13.1x 6.4% 12.8x 13.4x

    REIT Industry Total / Wtd. Avg. 15.7x 4.8% 14.4x 16.8x

    III. Pershings Proposal to McDonald's:

    McOpCo IPO

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    Sign i f ic ant Va lue Creat ion for Shareholders

    Based on relevant

    publicly tradedcomparable companies,including several realestate holding C-Corporations, Pro FormaMcDonalds would tradein the range of 12.5x13.5x EV/CY 06EEBITDA. We believe PFMcDonalds would tradeat a 37%52% premiumover where it tradestoday.

    ________________________________________________

    (1) Assumes $1.35 bn of net debt allocated to McOpCo and $5.0 bn of net debt allocated to PF McDonalds. In addition, assumes $9.7 bn of incremental leverage placed onPF McDonalds.

    (2) Represents 35% of the market equity value of McOpCo.(3) Assumes incremental leverage and the after-tax proceeds from McOpCo IPO (net of fees and expenses) are used to buy back approximately 316 mm shares at an average price of $40.(4)

    Assumes a recent stock price of $33.(5) P / FY 06E FCF multiple adjusted for Pro Forma McDonalds 35% stake in McOpCo.

    III. Pershings Proposal to McDonald's:

    McOpCo IPO

    $ in millions Low High

    EV/'06E EBITDA Multiple Range 12.5x 13.5x

    Enterprise Value $55,799 $60,263

    Less: Net Debt (12/31/05E) (1) 14,650 14,650

    Plus: Remaining Stake in McOpCo (2) 2,097 2,493

    Equity Value $43,247 $48,106

    Ending Shares Outstanding (12/31/05E)(3)

    957.3 957.3

    Price Per Share $45 $50

    Premium to recent price (4) 36.9% 52.3%

    Implied P/FY 2006 EPS Multiple 19.9x 22.2x

    Implied P/FY 2006 FCF Multiple (5) 19.8x 21.9x

    Implied FCF / Dividend Yield 5.1% 4.6%

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    McOpCo Va lua t ion Summ aryand Pot ent ia l IPO Proc eeds

    McOpCo would likely be valued at $6.0 billion to $7.1 billion of equity market value or 6.5x7.5x EV/06E EBITDA.

    ________________________________________________(1) See appendix for McOpCo IPO after-tax proceeds schedule.

    III. Pershings Proposal to McDonald's:McOpCo IPO

    Mc OpCo Financ ia l Sum mar y

    $ in millions

    McOpCo Financial Summary FY 2006E

    Company operated revenues $15,429

    Segment EBITDA, pre G&A 1,690

    EBITDA Margin, pre G&A 11.0% Assumed G&A for McOpCo 560

    Assumed G&A as a Percentage of Total G&A 25.0%

    EBITDA post G&A $1,130

    EBITDA Margins 7.3%

    Net Income $308

    EPS $0.24

    M c O p Co Va lu a t i o n Su m m a r y

    $ in millions Low High

    EV/'06E EBITDA Multiple Range 6.5x 7.5x

    McOpCo Enterprise Value $7,343 $8,472

    Net Debt (12/31/05) 1,350 1,350

    Equity Value of McOpCo $5,993 $7,122

    Ending Shares Outstanding 1,274 1,274

    Price per share $4.70 $5.59

    Estimated After-Tax IPO Proceeds (1) $3,042 $3,497

    See appendix for after-tax IPO proceeds schedule

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    Pro Forma Mc Donald s : Va luat ion Summ ary

    The valuation of PF McDonalds suggests a valuation range of $45$50 per share. Based on the midpoint of thevaluation analysis, PF McDonalds could be worth $47.50 per share, a 44% premium over where it trades today.

    ________________________________________________

    (1) Assumes $1.35 billion of net debt allocated to McOpCo and $5.0 billion of net debt allocated to PFMcDonalds. In addition, assumes $9.7 billion of incremental leverage placed on PF McDonalds.

    (2) Represents 35% of the market equity value of McOpCo.(3) Assumes incremental leverage and the after-tax proceeds from McOpCo IPO (net of fees and

    expenses) are used to buy back approximately shares 316 million shares at an average price of $40.(4)

    Assumes a recent stock price of $33.(5) P / FY 06E FCF multiple adjusted for Pro Forma McDonalds 35% stake in McOpCo.(6) Fees and expenses associated with the IPO and financing transactions.

    III. Pershings Proposal to McDonald's:McOpCo IPO

    PF McDonald 's Sum m ary Financia ls$ in millions

    Financial Summary FY 2006E

    Franchise Revenue $2,275

    Real Estate Revenue 5,118

    Total Revenue $7,393

    Franchise EBITDA, Pre G&A $2,275

    Real Estate EBITDA, Pre G&A 3,869

    Less: Allocated G&A 1,680

    Assumed G&A as a Percentage of Total G&A 75.0%

    Total EBITDA $4,464

    EBITDA Margins 60.4%

    Net Income 2,141

    EPS $2.27

    PF Mc Donald 's Valuat ion

    $ in millions Low High

    EV/'06E EBITDA Multiple Range 12.5x 13.5x

    Enterprise Value $55,799 $60,263

    Less: Net Debt (12/31/05E)(1)

    14,650 14,650

    Plus: Remaining Stake in McOpCo(2)

    2,097 2,493

    Equity Value $43,247 $48,106

    Ending Shares Outstanding (12/31/05E)(3)

    957.3 957.3

    Price Per Share $45 $50

    Premium to recent price (4) 36.9% 52.3%

    Implied P/FY 2006 EPS Multiple 19.9x 22.2x

    Implied P/FY 2006 FCF Multiple (5) 19.8x 21.9x

    Implied FCF / Dividend Yield 5.1% 4.6%Memo:Share Buyback:

    Incremental Debt Issued $9,685

    Less Transaction Fees and Expenses (6) ($300)

    Approximate Cash Received From IPO, after Tax $3,270

    Total Funds Available for Repurchase $12,654

    # of shares repurchased (mm) 316

    Average price of stock purchased $40

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    3.5x

    11.3x

    6.1x

    10.2x

    8.1x

    0.0x

    3.0x

    6.0x

    9.0x

    12.0x

    Brookfield Properties British Land Land Securities Forest City Enterprises

    25%

    48%56%

    35%

    59%

    0%

    25%

    50%

    75%

    100%

    Brookfield Properties British Land Land Securities Forest City Enterprises

    Com par ing PF Mc Donald s Cred i t St a t s w i t hCompar able Real Est at e Hold ing C-Corpora t ions

    Tot al Debt / 05E EBITDA (1 )

    Debt / Enterpr is e Value

    EBITDA/Interest: 5.8x (2) 2.3x 1.5x 2.5x NA

    Rating: BBB BBB NR BB+

    Pro Forma

    Pro Forma

    ________________________________________________

    (1) Based on Wall Street research estimates. Pro Forma McDonalds EV assumes a valuation multiple of 13x EV/FY06 EBITDA.(2) Assumes an average 5% fixed rate on PF McDonalds debt.

    III. Pershings Proposal to McDonald's:McOpCo IPO

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    Credi t Rat ings of Large Publ ic REITs

    A review of large REITs indicates that these businesses support investment grade ratings with adebt to enterprise value of 36% on average, as compared to Pro Forma McDonalds which wouldhave a debt to enterprise value of 25%.

    ________________________________________________

    Notes:Stock prices as of 11/11/2005.

    PF McDonalds EV assumes a valuation multiple of 13x EV/FY06 EBITDA.Total Debt includes Preferred.

    III. Pershings Proposal to McDonald's:McOpCo IPO

    Total Debt/ Moody's Moody's S&P S&P

    Company Name Enterprise Value Rating Outlook Rating Outlook

    Simon Property Group Inc. 47.2% Baa2 Stable BBB+ Stable

    Equity Office Properties Trust 50.9% Baa3 Stable BBB+ Stable

    Vornado Realty Trust 37.4% Baa3 Stable BBB+ Stable

    Equity Residential 38.4% Baa1 Stable BBB+ StablePrologis 31.5% Baa1 Stable BBB+ Stable

    Archstone-Smith Trust 33.5% Baa1 Stable BBB+ Stable

    Boston Properties Inc. 36.0% NR NR BBB+ Stable

    Kimco Realty Corp. 25.2% Baa1 Stable A- Stable

    AvalonBay Communities Inc. 27.3% Baa1 Stable BBB+ Stable

    Median Total Debt/EV 36%

    Average Total Debt/EV 36%

    PF McDonald's Total Debt/EV 25%

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    Pro Form a Mc Donalds Has A Superior Credi tProf i le t o a Typ ic a l REITIII. Pershings Proposal to McDonald's:

    McOpCo IPO

    Despi t e being a C-Corp and lac k ing t he t ax

    advan t ages o f a REIT, PF Mc Donal ds hassevera l super io r c red i t charac t er i st i cs

    fREITs are required to pay 90% of earnings

    through dividends, whereas Pro Forma McDonaldshas much more credit flexibility

    fPF McDonalds has significant brand value to support

    its cash flows and overall credit

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    Company Response t o PershingIV. Company Response to Pershing

    McDonald s asked i t s Adv isors t o he lp rev iew theProposal

    Goa l w as to rev iew the proposal to assess 4 c r i t i ca lareas:

    Advisors reported back with judgments on

    f (1) Valuation

    f (2) Credit Impact

    McDonalds Management reviewed the Proposal to assess

    f (3) Friction Costs

    f (4) Governance / Alignment Issues

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    Management Concerns: Fr ic t ion Cost s , Cred i tImpac t and Governance Issues

    Fr ic t ion Costs Cred i t Impac t Al ignment Issues

    Some f r i c t ion cos tsassoc ia ted w i th the CMBSf inanc ing s t ruc tu re , bu t no t agat ing issue

    f Potential property tax

    revaluations

    f Legal costs

    f Large transaction for CMBS

    market

    fMostly driven by CMBS

    financing

    Increm enta l $9bn of leverageas proposed may putpressure on cred i t ra t ing

    f Rating agency consolidation

    of McOpCo

    f Lease commitments viewed

    as leverage

    Separat ion o f McOpCo f romPF Mc Donalds m ay ca usea l ignment i ssues in the

    sys tem

    McDonalds management stated that, assuming adequate valuecreation, none of these issues would prevent a restructuring

    IV. Company Response to Pershing

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    Valuat ion: Judgm ents Made by Advisors

    f Advisors were assigned to review the Proposal

    f In general, Advisors agreed with Pershing on:

    9McOpCo valuation

    9Relative allocation of EBITDA between

    McOpCo and PF McDonalds

    f However, their judgment was that PF

    McDonalds would not enjoy significant multiple

    expansion

    PF McDonalds would trade like arestaurant stock

    IV. Company Response to Pershing

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    V. Developing a Response to the Company

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    Pershings Response Regarding Fr ic t ion Cost sand Cred i t Im pact

    Fr ic t ion Costs Cred it Impac t

    9 Friction costs immaterial in the context

    of value creation

    9 Friction costs and transaction delays

    were driven by CMBS financing

    9 Similar transaction could be effected

    with corporate debt

    9 Stability of PF McDonalds cash flow

    stream and robust asset base should

    allow it to incur additional debt withouta material adverse change in rating

    9YUMs credit rating is BBB-

    V. Developing a Response to theCompany

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    Franch isee A l ignment : Sk in in the GameV. Developing a Response to the

    Company

    Franc hisor /Franc hisee Conf l ic t

    f Top Line (percent of sales) vs. Bottom Line

    Some be l ieve th is c onf l i c t i s m i t iga t ed by ow ning andoperat ing un i t s

    How ever , many o f the m ost succ essfu l franch isorsoperat e few , i f any, un i ts

    f Historical McDonalds

    f Subway

    f Dunkin Donuts

    f Tim Hortons

    McDonald s cu r rent sk in in t he game is overs ta ted dueto lack o f t ransfer pr ic ing

    f We believe McOpCo represents ~10% of McDonalds total value

    PF Mc Donalds role as landl ord, f ranc hisor, 35%shareho lder and board member , leaves them w i th am ple

    sk in in the game

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    Franch isee A l ignment :

    Benef i ts t o Franc hisees of an independentMcOpCo

    V. Developing a Response to theCompany

    McOpCo IPO w ou ld sh if t some pow er to t he f ranch isebaseA good t h ing

    f Franchisees know whats best operationally

    f Franchisees have been the source of most product innovations (i.e. Big

    Mac, Egg McMuffin, Filet-o-Fish, Apple Pie)

    f Driving force behind current process innovations (call centers at drive-

    thru)

    f

    IPO would sharpen focus on being best in class franchisor

    Leve l the p lay ing f ie ld : McOpCo shou ld com pete on thesame basis as f ranchisees

    f Pay market rent and franchise fees

    f Be focused on bottom-line profitability

    f Be run by equity compensated management

    Oppor tun i ty fo r Franch isees t o expand un i t count

    f Heavy demand among operators to acquire/manage additional units

    f McOpCo should refranchise units better managed by franchisees

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    Valuat ion of PF Mc Donald sV. Developing a Response to theCompany

    Although there are some differences in opinion

    regarding friction costs, leverage and potential

    alignment issues, the key disparity betweenPershing and the Companys views was

    regarding the Valuation of Pro Forma McDonalds

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    PF Mc Donald s FY20 05E EBIT DApre-G&A Contr ibut ion

    Pro Form a Mc Donald s is

    Not a Rest aurant Com pany

    V. Developing a Response to theCompany

    37%

    63%

    Real Est a t e

    Brand Royal t y

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    Pro Forma Typical

    Real EstateC-Corp

    ChoiceHotels

    TypicalMature QSR

    2005E Operating Metrics:

    EBITDA Margins 60% ~70% - 80% 66% 23% 31% ~15% - 20%

    EBITDA CapEx Margins 50% ~65% - 75% 61% 18% 27% ~7.5 % - 12.5%

    EPS Growth 9% NA 16% 11% 9% ~10% - 12%

    Trading Multiples

    Adjusted Enterprise Value(2)

    /

    CY 2006E EBITDA 13.0x ~13x - 16x 15.1x 12.3x 12.6x ~8.5x - 9.5x

    CY 2006E EBITDA CapEx 15.5x ~17x - 20x 16.0x 15.5x 14.2x ~12x - 15x

    Price /

    CY 2006E EPS 21.1x NA 24.3x 20.1x 18.8x ~15x - 19xCY 2006E FCF (3) 20.9x ~20x - 25x 24.0x 20.8x 18.9x ~16x - 20x

    Leverage Multiples

    Net Debt / EBITDA 3.4x ~5x - 10x 1.7x 0.0x NM ~0.5x - 1.8x

    Total Debt / Enterprise Value 24% ~35% - 60% 11% 4% 4% ~7.5% - 20%

    Com parable Companies

    PF McDonalds operating metrics are much closer to a typical Real Estate C-Corporation or a highbranded intellectual property business such as PepsiCo or Coca-Cola than they are a typical QSR.

    High Branded Intangible Property

    V. Developing a Response to theCompany

    Assumes PF

    McDonaldsprice of ~$47.50

    ________________________________________________

    Stock prices as of 11/11/05. Projections based on Wall Street estimates.(1) Typical mature QSR based on YUM! Brands and Wendys.(2) Adjusted for unconsolidated assets.(3) FCF denotes Net Income plus D&A less CapEx.

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    McDonald's Stock Price $33.00 $37.00 $41.00 $45.00 $49.00 $53.00 $57.00

    McOpCo Share Price (7x EV / EBITDA Multiple) $5.15 $5.15 $5.15 $5.15 $5.15 $5.15 $5.15

    Implied Pro Forma McDonald's Share Price 27.85 31.85 35.85 39.85 43.85 47.85 51.85

    Yield on Pro Forma McDonald's 6.7% 5.9% 5.2% 4.7% 4.3% 3.9% 3.6%

    Signi f i c ant Free Cash Flow Yie ld / Div idend Yie ld

    Assuming No Increm enta l Debt

    At McDonalds current price of approximately $33 per share, we estimate Pro Forma McDonalds dividend/ FCF yield would be approximately 6.7%. (1)

    V. Developing a Response to theCompany

    Memo: Pro Forma McDonald's Free Cash Flow

    2006E EBITDA $4,464.0

    Less: Maintenance Capital Expenditures (438.6)

    Less: Growth Capital Expenditures (285.9)Plus / Less: Decreases / (Increases) in Working Capital 6.2

    Less: Interest (1) (250.0)

    Less: Cash Taxes (1,112.7)

    Free Cash Flow $2,383.0

    PFMcDonald's Shares Out (assuming no self-tender) 1,273.7

    Free Cash Flow per Share $1.87________________________________________________

    (1) Assuming PF McDonalds pays out 100% of its FCF as dividends.(2) Assumes no incremental leverage and an average cost of debt of 5% on the existing $5 bn of net debt at Pro Forma McDonalds.

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    Based on Reported FinancialsBased on Pershing Assumptions

    $1.5 $1.6$1.8 $1.9

    $2.1$2.5 $2.6 $2.7

    $2.9$3.2 $3.1 $3.1 $3.2

    $3.6$4.0

    $0.0

    $1.0

    $2.0

    $3.0

    $4.0

    1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

    Pro Forma Mc Donalds:

    Real Est at e and Franc hise EBITDA($ in billions)

    Real Estate & FranchiseEBITDA Growth: 4.9% 11.7% 8.5% 10.4% 15.3% 4.0% 4.3% 10.1% 7.4% (0.5%) 0.1% 0.9% 12.6% 13.4%

    ________________________________________________

    Notes:

    Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A.Assumes McOpCo pays franchise fees of 4% of sales and rent of 9% of sales.

    V. Developing a Response to theCompany

    Pershing believes the best way to think about Pro Forma McDonalds is as a growing annuity.

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    Whic h Would You Rat her Ow n:

    Pro Form a Mc Donalds or a Large Ret ai l REIT?V. Developing a Response to theCompany

    ________________________________________________

    Note: Assumes a 7x EV / FY 06E EBITDA multiple on McOpCo.(1) Retail / REIT dividend yield based on Simon Property Group. Illustrative LT Dividend growth based on Pershings estimates.(2) Assumes full payout of free cash flows for PF McDonalds.(3) Assumes 15% tax rate on PF McDonalds dividend and a 35% tax rate on the REIT dividend.(4) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.

    McDonald's Stock Price $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 $60.15 Typical

    McOpCo Stock Price 5.15 5.15 5.15 5.15 5.15 5.15 5.15 Large Retail

    PF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 REIT(1)

    Scenario 1: Pre-Tax Yield(2)

    6.7% 5.9% 5.2% 4.7% 4.3% 3.9% 3.6% 4.0%

    No Sharebuyback

    No Incremental After-Tax Investor Yield(3)

    5.7% 5.0% 4.4% 4.0% 3.6% 3.3% 3.1% 2.6%

    Leverage

    Estimated LT Dividend Growth 3% - 4% 3%- 6%

    Scenario 2 PF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00

    Proposed Pre-Tax Yield(4)

    8.5% 7.9% 6.7% 5.8% 5.1% 4.6% 4.1%

    Sharebuyback

    After-Tax Investor Yield (4) 7.2% 6.7% 5.7% 4.9% 4.3% 3.9% 3.5%

    Estimated LT Dividend Growth 3% - 4%

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    McDonald's Stock Price $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 $60.15

    McOpCo Stock Price 5.15 5.15 5.15 5.15 5.15 5.15 5.15 10 Year PF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 Treasury

    Scenario 1: Pre-Tax Yield(1)

    6.7% 5.9% 5.2% 4.7% 4.3% 3.9% 3.6% 4.6%

    No Sharebuyback

    No Incremental After-Tax Investor Yield(2)

    5.7% 5.0% 4.4% 4.0% 3.6% 3.3% 3.1% 3.0%

    Leverage

    Estimated LT Dividend Growth 3% - 4% 3% - 4% 0%

    Scenario 2 PF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00

    Proposed Pre-Tax Yield(3)

    8.5% 7.9% 6.7% 5.8% 5.1% 4.6% 4.1%

    Sharebuyback

    After-Tax Investor Yield (3) 7.2% 6.7% 5.7% 4.9% 4.3% 3.9% 3.5%

    Estimated LT Dividend Growth 3% - 4% 3% - 4%

    Whic h Would You Rat her Ow n:

    Pro Form a Mc Donalds or 10-Year U.S. Treasury?V. Developing a Response to theCompany

    ________________________________________________

    Note: Assumes a 7x EV / FY 06E EBITDA multiple on McOpCo.(1) Assumes full payout of free cash flows for PF McDonalds.(2) Assumes 15% tax rate on PF McDonalds dividend and a 35% tax rate on the 10-Year Treasury dividend.(3) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.

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    McDonald's Stock Price $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 $60.15

    McOpCo Stock Price 5.15 5.15 5.15 5.15 5.15 5.15 5.15 10 Year PF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 TIPS

    Scenario 1: Pre-Tax Yield(1)

    6.7% 5.9% 5.2% 4.7% 4.3% 3.9% 3.6% 2.1%

    No Sharebuyback

    No Incremental After-Tax Investor Yield(2)

    5.7% 5.0% 4.4% 4.0% 3.6% 3.3% 3.1% 3.0%

    Leverage

    Estimated LT Dividend Growth 3% - 4% 2.5%

    Scenario 2 PF McDonald's Stock Price $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00

    Proposed Pre-Tax Yield(3)

    8.5% 7.9% 6.7% 5.8% 5.1% 4.6% 4.1%

    Sharebuyback

    After-Tax Investor Yield (3) 7.2% 6.7% 5.7% 4.9% 4.3% 3.9% 3.5%

    Estimated LT Dividend Growth 3% - 4%

    Whic h Would You Rat her Ow n:

    Pro Forma Mc Donald s or a Treasury In f la t ionProt ec t ed Sec ur i t y (TIPS)?

    V. Developing a Response to theCompany

    ________________________________________________

    Note: Assumes a 7x EV / FY 06E EBITDA multiple on McOpCo.(1) Assumes full payout of free cash flows for PF McDonalds.(2) Assumes 15% tax rate on PF McDonalds dividend and a 35% tax rate on the TIPS dividend.(3) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo.

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    Valuat i on o f McDonald s as a Grow ing Annui ty

    Based on a review of the cost of capital of Real Estate holding corporations and Intangible Property /Franchise businesses like Coca Cola and Choice Hotels, we believe that Pro Forma McDonalds leveredFCF could have a discount rate in the area 7.25% - 7.75%. As such, we believe PF McDonalds would

    have a FCF Yield of 4.25% - 5.25%. This implies a midpoint equity valuation range of $48 per share.

    V. Developing a Response to theCompany

    ________________________________________________

    (1)

    Assumes no dividend paid in FCF calculation.(2) Includes the value of PF McDonalds 35% equity stake in McOpCo (approx. $2 per share). Assumes a 7x EV / FY 06E EBITDA McOpCo valuation multiple.

    Midpoint of PF

    McDonaldsEquity Value per

    Share(2): $48

    Low High

    Estimated Discount Rate 7.75% 7.25%

    Implied Perpetuity Growth Rate 2.50% 3.00%

    Implied FCF Yield 5.25% 4.25%

    Implied FCF Multiple 19.0x 23.5x

    FY'06E Free Cash Flow per Share (1) $2.17 $2.17

    (Note: FCF Assumes Proposal Scenario)

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    Conclus ionsV. Developing a Response to the

    Company

    f McDonalds is significantly undervalued today

    Over 80% of its cash flows comes from realestate income and franchise income

    f Proposal creates value for several reasons

    Increases shareholder value

    Improves management focus

    Increases transparency

    Improves capital allocation

    Improves franchise alignment

    f There are multiple ways to unlock value

    Pershings Initial Proposal

    Variations on Pershings Initial Proposal

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    Next S tepsV. Developing a Response to the

    Company

    f Engage constituents regarding proposal

    Shareholders

    Franchisees

    Broad investment community

    f Incorporate your feedback

    f Consider revised proposal

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    V. Developing a Response to theCompany

    Q & A

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    Appendix

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    A. Pershings Proposal: Assumptions

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    McOpCo IPO: General Assumpt ions

    f 65% of McOpCo shares are IPOed in the transaction

    35% stake retained by PF McDonalds allows for McOpCos business to

    be deconsolidated

    f McOpCo is assumed to be essentially a debt free subsidiary

    f Immediately prior to the IPO, $1.35bn of McDonalds consolidated FY 05E

    net debt is allocated to McOpCo

    $1.5 billion of total debt allocated

    $150mm of cash and cash equivalents allocatedf The remaining $5bn of FY 05E net debt is allocated to PF McDonalds

    $5.15bn of total debt

    $150mm of cash and cash equivalents

    f McOpCos tax basis is assumed to be approximately $1.65 billion

    Tax basis is equal to $3 billion of initial assumed basis (based on an

    assessment of net equipment and other property at McDonalds) less $1.35

    billion of allocated net debt

    f To the extent that the IPO distribution exceeds PF McDonalds tax basis in

    McOpCo, then the tax cost for the IPO would be the amount by which the IPO

    distribution exceeds McDonald's basis multiplied by McDonalds corporate and

    state/local tax rate

    Pershing has assumed

    the following structuraland tax assumptionswith respect to an IPO

    spin-off of McOpCo.

    A. Pershings Proposal: Assumptions

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    McOpCo IPO: Struc tu ra l And Tax Observa t ions

    Step 1: McOpCo dividends a $4.2bnNote to McDonalds (parent)

    Step 2: IPO of McOpCo andTax Costs

    Step 3: Leveraged Self-Tender atPro Forma McDonalds

    McOpCo

    McOpCo

    EquityMarkets

    FranCo

    f McOpCo declares and pays a dividend to

    McDonalds (parent) in the form of a Note in an

    amount equal to the anticipated proceeds from

    an initial public offering of McOpCo

    f For illustrative purposes, we assume the Note is

    for $4.2bn, or 65% of the equity market value

    of McOpCo (assumed to be $6.5bn)

    f McOpCo undertakes the IPO and uses the

    proceeds to repay the dividend note.

    f The tax cost for the IPO would be the amount by

    which the IPO distribution exceeded McDonald's

    basis in the McOpCo stock multiplied by

    McDonalds corporate and state/local tax rate

    f Assuming a $4.2bn of IPO distribution, the tax

    cost would be approximately $1bn

    Tax cost equals $4.2 billion of distribution

    less $1.65 billion of basis multiplied by the

    tax rate of 38%

    f As such, after tax proceeds of the McOpCo IPO

    will be approximately $3.2 billion

    f PF McDonalds is organized as a real estate

    business (PropCo) and a franchise business

    (FranCo)

    f PropCo issues secured financing with

    proceeds used for

    Repaying existing debt at PF

    McDonalds

    Buying back shares

    f PF McDonalds performs a self tender using

    proceeds from:

    New CMBS financings

    After tax proceeds of IPO

    IPO ofMcOpCoShares

    $4.2bnNote

    $4.2 bn cash received

    McOpCo repays $4.2 bnNote to McDonalds

    McDonaldsretains

    35% stake

    PropCo

    Pro Forma

    Issues CMBSfinancing, or$9.7bn ofincremental debt

    PF McDonaldsperforms aleveraged self-tender

    No debt at FranCo

    A. Pershings Proposal: Assumptions

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    McOpCo IPO Proceeds

    Mc OpCo IPO Af ter Tax Proc eeds

    Low High Average

    Taxes payableMcOpCo Equity Market Value $5,993 $7,122 $6,558

    IPO Percentage 65% 65% 65%

    Distribution to PF McDonald's $3,895 $4,630 $4,262

    Book Basis of McOpCo 3,000 3,000 3,000

    Net Debt Allocated to McOpCo (1,350) (1,350) (1,350)

    Adjusted Basis in McOpCo 1,650 1,650 1,650

    Taxable Gain $2,245 $2,980 $2,612

    Tax Rate 38% 38% 38%

    Taxes payable $853 $1,132 $993

    After Tax Proceeds

    Distribution $3,895 $4,630 $4,262

    Taxes Payable (853) (1,132) (993)

    After Tax Distributions $3,042 $3,497 $3,270

    Set forth herein is a

    schedule of theafter-tax proceedsfrom the McOpCoIPO.

    A. Pershings Proposal: Assumptions

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    Col la t era l ized Financ ing

    Assuming PF McDonalds owns the land and building of 37% of its system wide units and owns thebuildings of 22% of its system wide units, then a preliminary valuation of McDonalds real estate suggestsa value of $33 billion.

    A. Pershings Proposal: Assumptions

    Avg. Annual Rev. Est. Market Est. Market Est. Est. Rent Cap Total Real

    $ in million Per Unit Rent % Rent $ # of Units Income Rate Estate Value

    Property Value

    Owns Land and Building 1.75 9.0% 0.16 11,709 1,844.2 7.0% $26,346

    Owns Building (Leases Land) 1.75 4.5% 0.08 6,962 548.3 8.0% $6,854

    Estimated Property Value $33,200

    Est. Rent Est. Est. Rent Cap Total Real

    $ in million Spread Per Avg unit # of Units Income, Net Rate Estate Value

    Leasehold Value

    Leaseholds 0.10 12,975 1,322.8 10.0% $13,228

    Estimated Leasehold Value $13,228

    Total Real Estate Collateral Value $46,428

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    PF McDona lds : Cost o f Cap i ta l

    We estimated the asset betas of several Real Estate holding C-Corporations and severalhigh branded intellectual property businesses.

    A. Pershings Proposal: Assumptions

    Note: Market information as of 11/10/05. Utilized treasury stock method.

    Sources: Barra, company reports, Factset, and Wall Street Equity research.

    High Branded In tang ib le Proper ty Business Bet as(Dol lar values in m i l l ions)

    Adjusted Marginal Total Debt &

    Equity Cost of Equity Total Preferred Tax Unlevered Preferred /

    Company Beta Equity Value Debt Stock Rate Beta TEV

    Coca Cola Co. 0.49 7.3% $101,776.1 $4,200.0 - 38.0% 0.48 4.2%

    Pepsico Inc. 0.46 7.2% 99,498.9 4,607.0 41.0 38.0% 0.45 4.7%

    Choice Hotels 0.86 9.3% 2,285.7 296.7 - 38.0% 0.79 11.7%

    Mean 0.60 7.9% $67,853.6 $3,034.6 $13.7 38.0% 0.57 6.8%

    Median 0.49 7.3% 99,498.9 4,200.0 - 38.0% 0.48 4.7%

    Real Esta t e Business Betas(Dol lar values in m i l l ions)

    Adjusted Marginal Total Debt &

    Equity Cost of Equity Total Preferred Tax Unlevered Preferred /

    Company Beta Equity Value Debt Stock Rate Beta TEV

    British Land 0.62 8.0% $8,913.9 $11,391.1 - 38.0% 0.34 56.8%Brookfield Properties 0.80 9.0% 6,805.9 6,208.0 1,477.0 38.0% 0.45 60.5%

    Forest City Enterprises 0.66 8.2% 3,863.9 5,566.0 - 38.0% 0.35 59.3%

    Land Securities 0.55 7.7% 12,279.2 6,484.2 - 38.0% 0.42 34.6%

    Mean 0.66 8.2% $7,965.7 $7,412.3 $369.3 38.0% 0.39 52.8%

    Median 0.64 8.1% 7,859.9 6,346.1 - 38.0% 0.38 58.0%

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    B. PF McDonald's Financial Analysis

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    f Net Unit Growth Approximates 1.5% - 2.0% of total franchise system unit growth annually or 1.0% - 1.5% of systemwide unit growth

    f Revenue drivers:

    Average systemwide same-store sales CAGR of ~2.5% annually

    Rental revenue from franchisees of 9.0% of franchise & affiliated system sales

    Rental revenue from McOpCo of 9.0% of McOpCo sales Franchise revenue from franchisees of 4.0% of franchise & affiliated system sales

    Franchise revenue from McOpCo of 4.0% of McOpCo sales

    f Cost drivers:

    Franchise rental expense based on a historical % of rental revenue from franchisees

    McOpCo rental expense based on a historical % of rental revenue from McOpCo

    D&A calculated assuming a 20-year useful life for existing net depreciable PP&E of approximately $12.5 billion

    (excluding land), and a 20-year useful life for depreciable PP&E purchased in the future

    75% of SG&A allocated to Pro Forma McDonalds

    f Net CapEx drivers:

    All CapEx is net of proceeds received from store closures $1.3 million of CapEx for each new unit where Pro Forma McDonalds owns the land and the building in 2005 and 2006,

    growing at an inflationary rate of 2.0% thereafter

    $650K million of CapEx for each new unit where Pro Forma McDonalds owns the building but not the land in 2005 and

    2006, growing at an inflationary rate of 2.0% thereafter

    Run-rate maintenance CapEx of approximately $320 million, implying approximately $10K per system wide unit,

    growing at 2%

    Allocation of 75% of consolidated McDonalds corporate CapEx

    Consolidated corporate CapEx held constant at 0.7% of sales

    f Other

    Incremental total debt of $9.7 billion, resulting in total debt of approximately $14.8 billion (net debt of $14.65bn) Free cash used to buy back shares and pay dividends

    $150 mm minimum cash balance

    Tax rate of 32%

    Minimal working capital requirements

    25% Debt to Cap ratio increasing to 30% in 2008

    Assumes an illustrative 30% dividend payout ratio to match current consolidated McDonalds

    Pro Form a Mc Dona lds : Mode l Key Dr ivers

    Set forth herein are

    the assumptions forthe Pro FormaMcDonaldsbusiness.

    B. PF McDonald's Financial Analysis

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    2004 Mc Donald s P& L As Report ed Mc Donald s

    B. PF McDonald's Financial Analysis

    Set forth below is table which reconciles McOpCos, the Real Estate and Franchise businesses and stand-aloneMcDonalds FY 2004 income statements, as they are currently reported. The analysis demonstrates howMcOpCo is paying neither a market rent nor a franchise fee.

    ________________________________________________

    The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. To the extent that there shouldbe more G&A allocated to McOpCo, then there would be a greater percentage of total EBITDA at the Real Estate and Franchise business than what is shown here.Note: Analysis excludes $441 mm of non-recurring other net operating expenses.

    .

    (U.S. $ in millions)

    Real Estate 2004

    2004 McOpCo and Franchise Consolidated

    Income Statement P&L P&L Sum of Parts

    Sales by Company Operated Restaurants $14,224 $14,224 $14,224

    Rent from Franchise and Affiliate Rest. 3,336 3,336 3,336

    Franchise Fees From Franchise and Affiliate Rest. 1,505 1,505 1,505

    Total Revenue $19,065 $14,224 $4,841 $19,065

    Company Operated Expenses:

    Food and Paper 4,853 4,853 - 4,853

    Compensation & Benefits 3,726 3,726 - 3,726

    Occupancy and Other Expenses (excl. D&A) 2,747 2,747 - 2,747

    Company Operated D&A 774 427 347 774

    Total Company Operated Expenses $12,100 $11,753 $347 $12,100

    Franchised Restaurant Occupancy Costs 576 - 576 576

    Franchise PPE D&A 427 427 427Corporate G&A 1,980 495 1,485 1,980

    EBIT 3,982 1,976 2,006 3,982

    Depreciation & Amortization 1,201 427 774 1,201

    EBITDA $5,183 $2,403 $2,780 $5,183

    % of Total EBITDA 100% 46% 54% 100%

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    2006E Net Capi ta l Ex pendi tures Reconc i l ia t ion

    B. PF McDonald's Financial Analysis

    Set forth herein is a

    table whichdemonstrates net capitalexpenditures bycategory for McOpCo,PF McDonalds and thestandalone(consolidated)

    McDonalds.

    Note: Our Free CashFlows are derivedusing Net CapitalExpenditures, net ofproceeds received

    from closures. Wenote that the Companytypically generates$300 - $400mm ofproceeds annuallyfrom closings.

    2006E Net Capi ta l Expendi t ures

    (U.S. $ in millions)

    Consolidated Pro Forma

    McDonald's McOpCo McDonald's

    New Restaurants, Net $316 $30 $286

    Existing Restaurants 787 465 322

    Corporate/Other 156 39 117

    Net Capital Expenditures $1,259 $534 $724

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    PF Mc Donald s : Sum m ary Inc om e St at em ent

    B. PF McDonald's Financial Analysis

    Below are the summary projections for Pro Forma McDonalds based on the assumptionsdetailed on page 68.

    ($ in millions, except per share data)

    2006 - 2011

    2002A 2003A 2004A 2005E 2006E 2007E 2008E 2009E 2010E 2011E CAGR

    Income Statement Data

    Revenue $5,401.0 $6,008.5 $6,690.0 $7,124.1 $7,393.1 $7,676.7 $7,969.9 $8,276.2 $8,596.2 $8,930.9 3.9%

    % Growth 11.2% 11.3% 6.5% 3.8% 3.8% 3.8% 3.8% 3.9% 3.9%

    EBITDA $3,168.7 $3,568.2 $4,046.0 $4,276.7 $4,464.0 $4,653.4 $4,849.3 $5,054.9 $5,270.8 $5,497.5 4.3%

    % Margin 58.7% 59.4% 60.5% 60.0% 60.4% 60.6% 60.8% 61.1% 61.3% 61.6%

    EBITDA - CapEx 4,046.0 3,312.7 3,739.5 3,909.2 4,085.0 4,258.5 4,440.1 4,630.1 4.4%% Margin 60.5% 46.5% 50.6% 50.9% 51.3% 51.5% 51.7% 51.8%

    D&A 774.0 712.3 736.9 768.5 794.5 821.5 849.6 878.8

    EBIT $2,492.7 $2,827.4 $3,272.0 $3,564.4 $3,727.0 $3,884.9 $4,054.8 $4,233.4 $4,421.2 $4,618.6 4.4%

    % Margin 46.2% 47.1% 48.9% 50.0% 50.4% 50.6% 50.9% 51.2% 51.4% 51.7%

    Net Interest Expense (736.6) (801.5) (889.7) (932.5) (971.8) (1,012.7)

    Equity Income from OpCo 35.0% 107.9 121.9 137.5 151.7 162.4 171.9

    Net Income $2,141.4 $2,218.6 $2,289.8 $2,396.3 $2,507.9 $2,623.9 4.1%

    EPS $2.27 $2.47 $2.72 $2.97 $3.24 $3.54 9.3%

    Average Shares Outstanding 945.4 897.8 842.8 806.4 773.3 741.8

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    PF McDonald s : Sum m ary Cash Flow and Balanc e

    SheetB. PF McDonald's Financial Analysis

    Below are the summary cash flow projections for Pro Forma McDonalds based on theassumptions detailed on page 68.

    ($ in millions, except per share data)

    2006 - 2011

    2002A 2003A 2004A 2005E 2006E 2007E 2008E 2009E 2010E 2011E CAGR

    Cash Flow Data

    EBITDA $4,464.0 $4,653.4 $4,849.3 $5,054.9 $5,270.8 $5,497.5

    less: Cash Taxes (956.9) (986.7) (1,012.8) (1,056.3) (1,103.8) (1,153.9)

    less: Cash Interest Expense (736.6) (801.5) (889.7) (932.5) (971.8) (1,012.7)

    less: Dividends (653.2) (676.8) (698.5) (731.0) (765.0) (800.4)

    less: Change in Working Capital 6.2 6.5 6.7 7.0 7.2 7.5

    less: Growth CapEx (285.9) (291.6) (297.4) (314.7) (333.5) (354.0)

    less: Maintenance CapEx (438.6) (452.6) (466.9) (481.7) (497.2) (513.4)

    plus: After-tax Dividends from McOpCo 0.0 0.0 0.0 0.0 0.0 0.0

    Free Cash Flow (post dividends) $1,398.9 $1,450.8 $1,490.7 $1,545.7 $1,606.7 $1,670.6

    Free Cash Flow (pre dividends) 2,052.1 2,127.6 2,189.2 2,276.7 2,371.7 2,471.0

    FCF per Share (pre dividends) $2.17 $2.37 $2.60 $2.82 $3.07 $3.33 8.9%

    Illustrative Stock Price at 20x LTM FCF $43.41 $47.40 $51.95 $56.47 $61.34 $66.63

    20

    Balance Sheet Data

    Cash 150.0 150.0 150.0 150.0 150.0 150.0 150.0

    Revolver 0.0 0.0 0.0 0.0 0.0 0.0 0.0

    Long-Term Debt $14,800.0 14,800.0 17,393.4 18,331.6 19,104.0 19,904.5 20,740.4

    Total Debt / Capitalization 24.5% 26.8% 30.0% 30.0% 30.0% 30.0% 30.0%

    Total Debt / EBITDA 3.5x 3.3x 3.7x 3.8x 3.8x 3.8x 3.8x

    Net Debt / EBITDA 3.4x 3.3x 3.7x 3.7x 3.7x 3.7x 3.7x

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    C. McOpCo Financial Analysis

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    C. McOpCo Financial AnalysisMcOpCo Summ ary Income Sta t emen t

    Set forth below are the summary projections for McOpCo based on the assumptions detailed on page 76.

    (U.S. $ in millions)

    2006 - 2011

    2004A 2005E 2006E 2007E 2008E 2009E 2010E 2011E CAGR

    Income Statement Data

    Revenue $14,223.8 $15,042.4 $15,428.9 $15,838.3 $16,259.2 $16,692.0 $17,136.9 $17,594.4 2.7%

    % Growth 11.2% 5.8% 2.6% 2.7% 2.7% 2.7% 2.7% 2.7%

    EBITDA $1,136.7 $1,085.7 $1,129.6 $1,173.3 $1,218.5 $1,265.4 $1,313.9 $1,364.2 3.8%

    % Margin 8.0% 7.2% 7.3% 7.4% 7.5% 7.6% 7.7% 7.8% EBITDA - CapEx 1,136.7 562.5 595.6 628.1 662.0 697.3 734.0 772.2 5.3%

    % Margin 8.0% 3.7% 3.9% 4.0% 4.1% 4.2% 4.3% 4.4%

    D&A 427.0 575.5 587.4 599.6 609.3 622.0 635.0 645.2

    EBIT $709.7 $510.2 $542.2 $573.6 $609.2 $643.3 $678.9 $718.9 5.8%

    % Margin 5.0% 3.4% 3.5% 3.6% 3.7% 3.9% 4.0% 4.1%

    Net Interest Expense (90.9) (68.5) (43.9) (17.0) 0.2 3.4

    Net Income $306.9 $343.5 $384.4 $425.9 $461.8 $491.2 9.9%

    EPS $0.24 $0.27 $0.30 $0.33 $0.37 $0.41 11.3%

    Average Shares Outstanding 1,273.7 1,273.7 1,273.7 1,273.7 1,248.1 1,191.9

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    McOpCo Summ ary Cash Flow and Balance SheetC. McOpCo Financial Analysis

    Set forth below are the summary cash flow projections for McOpCo based on theassumptions detailed on page 76.

    2006 - 2011

    2004A 2005E 2006E 2007E 2008E 2009E 2010E 2011E CAGR

    Cash Flow Data

    EBITDA $1,129.6 $1,173.3 $1,218.5 $1,265.4 $1,313.9 $1,364.2

    less: Cash Taxes (145.1) (163.9) (184.9) (203.9) (218.3) (231.1)

    less: Cash Interest Expense (88.7) (61.5) (31.4) (6.1) 3.4 3.4

    less: Dividends 0.0 0.0 0.0 0.0 0.0 0.0less: Change in Working Capital 6.2 6.5 6.7 7.0 7.2 7.5

    less: Growth CapEx (30.0) (30.6) (31.2) (31.8) (32.5) (33.1)

    less: Maintenance CapEx (504.0) (514.5) (525.3) (536.2) (547.4) (558.8)

    Free Cash Flow (after dividends) $367.9 $409.3 $452.5 $494.3 $526.3 $552.0 8.5%

    Free Cash Flow per share (before dividends) $0.29 $0.32 $0.36 $0.39 $0.44 $0.49 11.1%

    Balance Sheet Data

    Cash 150.0 150.0 150.0 150.0 150.0 150.0 150.0

    Revolver 0.0 0.0 0.0 0.0 0.0 0.0 0.0

    Long-Term Debt 1,500.0 1,132.1 722.8 270.3 0.0 0.0 0.0

    Total Debt / EBITDA 1.4x 1.0x 0.6x 0.2x 0.0x 0.0x 0.0x

    Net Debt / EBITDA 1.2x 0.9x 0.5x 0.1x -0.1x -0.1x -0.1x

    Final Revised Proposal.ppt

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    Confidential

    A Plan to Win / Win

    January 18, 2006

    Pershing SquareCapital Management

    Final Revised Proposal.ppt

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    2

    DISCLAIMER

    Pershing Square Capital Management's ("Pershing") analysis and conclusions regarding

    McDonald's Corporation ("McDonald's or the Company) are based on publicly available

    information. Pershing recognizes that there may be confidential information in the possession of

    the Company and its advisors that could lead them to disagree with Pershings conclusions or the

    approach Pershing is advocating.

    The analyses provided include certain estimates and projections prepared with respect to, among

    other things, the historical and anticipated operating performance of the Company. Such

    statements, estimates, and projections reflect various assumptions by Pershing concerning

    anticipated results that are inherently subject to significant economic, competitive, and other

    uncertainties and contingencies and have been included solely for illustrative purposes. No

    representations, express or implied, are made as to the accuracy or completeness of such

    statements, estimates or projections or with respect to any other materials herein. Actual results

    may vary materially from the estimates and projected results contained herein.

    Pershing manages funds that are in the business of trading - buying and selling - public securities.

    It is possible that there will be developments in the future that cause Pershing to change its position

    regarding the Company and possibly reduce, dispose of, or change the form of its investment in the

    Company. Pershing recognizes that the Company has a stock market capitalization in excess of

    $40bn, and that, accordingly, it could be more difficult to exert influence over its Board than hasbeen the case with smaller companies.

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    AgendaA Revised Proposal for Creating Value

    at McDonalds

    Background of our involvement

    What are our objectives?

    Brief review of our Initial Proposal

    Our Revised Proposal

    Benefits of our Revised Proposal

    9 Company

    9 Franchisees

    9 Shareholders

    Q & A

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    Pershings Involvement with McDonalds

    September 22, 2005: Pershing Square Capital Management(Pershing) presented a proposal for increasing shareholdervalue (Initial Proposal) to McDonalds management

    October 31, 2005: McDonalds management communicated itsresponse to our Initial Proposal

    f Management believed that our Initial Proposal (1) would result in potential

    frictional costs; (2) could have an unfavorable credit impact; and (3)

    could create system issues

    f McDonalds believed, based on its advisors valuation, that there was not

    enough value creation to outweigh frictional costs and other concerns

    November 15, 2005: Pershing presented the Initial Proposal to

    the investment community

    f Since November 15, we have had numerous discussions with shareholders

    and franchisees from around the world

    Today we would like to share our Revised Proposal for

    Creating Significant Value at McDonalds which incorporatesfeedback from McDonalds management, franchisees and othershareholders

    A Revised Proposal for Creating Value

    at McDonalds

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    What Are Our Objectives?A Revised Proposal for Creating Value

    at McDonalds

    In developing our Revised Proposal, our objectivesare to:

    9Improve McOpCos operating performance

    9Strengthen the McDonalds System

    9Unlock significant shareholder value

    We believe our Revised Proposal will:

    fAchieve these objectives

    fAddress all of the Companys concerns regarding our

    first proposal

    f Increase McDonalds share price to $46-$50 per share

    (before considering any operational benefits)fMinimize execution risk and management distraction

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    Confidential

    Objective 1:

    Improve McOpCos Operating

    Performance

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    Objective 1: Improve McOpCos OperatingPerformance

    McOpCo, as a wholly owned subsidiary, is not

    achieving its full business and financial potential

    fMcOpCo does not pay a market rent or a franchise fee, unlike a

    typical franchisee

    f Adjusting for a market rent and a franchise fee, McOpCo haslower average unit margins than those of an average U.S.

    franchisee

    fCorporate subsidies in the form of uncharged rent anduncharged franchisee fees have led to McOpCo being run

    inefficiently over time

    Uneconomical capital allocation decisions

    Suboptimal pricing policy

    A Revised Proposal for Creating Value

    at McDonalds

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    Objective 1: Improve McOpCos OperatingPerformance (contd)

    Estimated 4-Wall EBITDA Margins

    12.7%

    8.8%

    14.8%

    0%

    4%

    8%

    12%

    16%

    Avg. U.S. McOpCo Avg. Intl. McOpCo Avg. U.S. Franchise

    Estimated4-WallEBITDAM

    argin%

    Adjusted for a Market Rent and Franchise Fee

    (1)

    (1)

    (2)

    McOpCos Estimated Average Unit EBITDA marginsversus

    U.S. Franchisees Estimated Average Unit EBITDA margins(1)

    ________________________________________________

    Note: See page 57 of the Appendix for Pershings detailed assumptions.1) Analysis is based on Pershings estimates using 2004 financial data. McDonalds does not provide average unit data for McOpCo or McDonalds franchisees in its

    public financials. Assumes a market rent of 9% of sales and a franchise fee of 4% of sales.2) Based on $260k of average EBITDA per franchised store and average revenues per franchised store of approximately $1,760k.

    A Revised Proposal for Creating Value

    at McDonalds

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    Objective 1: Improve McOpCos OperatingPerformance (contd)

    McOpCo managers do not have appropriate

    compensation incentives

    fNo direct equity compensation in McOpCos business

    fNo market-based performance measurement system

    fFarm Team mentality whereby the best McOpCo

    managers are promoted to corporate McDonalds

    If they dont join corporate McDonalds, theysometimes leave to become a franchisee

    fTop restaurant operators need more incentive to

    stay at McOpCo

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    at McDonalds

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    Objective 1:Improve McOpCos OperatingPerformance (contd)

    Earn the Right to Own

    McOpCos restaurant portfolio needs to be optimized in order to improve margins and capital allocation

    A Revised Proposal for Creating Value

    at McDonalds

    Refranchise selectunits in mature

    markets

    Redeploy capital andresources in

    emerging markets

    McOpCo

    increases focuson emergingmarkets growth

    f Because of their developed franchise systems,mature markets do not need the same capital or

    resources as emerging markets

    f e.g., U.S., Canada and U.K.

    f Capital and freed-up resources from refranchising

    should be redeployed in fast growing / high return

    emerging QSR markets

    Regions where franchise laws are still in

    infancy and McDonalds franchise base is notyet sufficient to drive growth

    e.g., China and Russia

    f McOpCo should increase its focus on profitable

    emerging markets growth

    McOpCo

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    Confidential

    Objective 2:

    Strengthen the McDonalds

    System

    Final Revised Proposal.ppt

    Obj ti 2 St th th M D ld

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    Objective 2: Strengthen the McDonaldsSystem

    (1) Inherent conflict between McDonalds and the Franchisees:McDonalds Top-line focus versus Franchisees Bottom-line focus

    fMcDonalds makes the bulk of its profits from the franchisees top line

    f However, top line same-store sales growth does not always translate into improving franchisees

    bottom line

    Stock market often rewards McDonalds for higher same store sales growth even though the

    franchisees are sometimes pressured to sacrifice margin for discount pricing

    (2) McOpCo, with its subsidized economics, magnifies this conflict

    f McOpCo does not compete on equal footing because it does not pay a market rent or franchisee fee

    f Suboptimal pricing or capital allocation decisions do not impact McOpCos financials as

    dramatically as those of franchisees

    f Perception among franchisees is that McOpCo is not held to the same degree of accountability

    A Revised Proposal for Creating Value

    at McDonalds

    Pershing spoke with franchisees from around the world. Heres what they told us:

    Final Revised Proposal.ppt

    St th i th M D ld S t

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    (3) Capital allocation criteria / decision-making process varies between McOpCo

    and the franchisee community

    f Low ROIC investments are occasionally forced upon franchisees

    fMcOpCo regional managers often make capital investment decisions they will not have to live with,

    given their status as salaried employees with limited tenure in any one position

    f Made for Youprogram is an example of a historical capital investment decision that may have

    been amended or prevented by an arm's-length McOpCo

    Hundreds of millions of dollars of capital invested in a kitchen system that is widely

    considered inefficient For many franchisees, it has led to decreased profitability, increased wait times and increased

    staffing requirements

    Testing at McOpCo did not reveal the true economic impact of the program

    Made for You problems could have been prevented if the system had the appropriatechecks and balances

    Strengthening the McDonalds System:What Franchisees Had to SayA Revised Proposal for Creating Value

    at McDonalds

    Final Revised Proposal.ppt

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    (4) McOpCo undercuts on pricing

    fMcOpCos subsidized economics reduce the impact of lower margin product pricing decisions

    f As such, approximately 27% (1) of the McDonalds system currently does not price optimally

    Reduces the profitability of the entire system

    f Underpricing at McOpCo pressures franchisees to sacrifice penny profits for traffic

    and sales volume

    (5) McDonald

    s should retain control of McOpCof Franchisees generally agreed that control of McOpCo should remain with McDonalds

    Keeps the franchisee vote democratic and dispersed

    A Revised Proposal for Creating Value

    at McDonalds

    ________________________________________________

    (1): Based on approximately 8,119 McOpCo restaurants out of 30,516 systemwide McDonalds restaurants, as of 2004.

    Strengthening the McDonalds System:What Franchisees Had to Say(contd)

    Final Revised Proposal.ppt

    St th i th M D ld S t

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    Strengthening the McDonalds System:What Franchisees Had to Say(contd)

    (6) Strong interest in owning new units / McOpCo refranchising program

    f Franchisees have a strong interest in buying McOpCo restaurants

    Given McDonalds exclusivity requirements for franchisees, the only opportunity for

    franchisees to materially increase their wealth is to own more McDonalds units

    f A refranchising program would create an attractive incentive system

    Would allow the top quartile performing operators to be rewarded with an opportunity to

    increase units

    fMcOpCos current portfolio of restaurants needs to be rationalized through refranchising,in order to

    Increase McOpCos profitability

    Improve systemwide same-store sales growth

    Satisfy considerable franchisee demand

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    at McDonalds

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    Confidential

    Objective 3:

    Unlock Shareholder Value

    Final Revised Proposal.ppt

    Objective 3: Unlock Shareholder Value at

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    Objective 3: Unlock Shareholder Value atMcDonalds

    fMcDonalds controls

    substantially all of its

    systemwide real estate

    fEarns 9% of systemwide

    unit sales as rent

    fFor real estate it does not

    own, it pays a rent expenseand generates income

    through subleases

    fApproximately 32,000

    restaurants where

    McDonalds receives 4%

    of unit sales

    Franchise

    Restaurant Operations

    Real Estate

    Brand McDonalds McOpCo

    fOver 8,000 McDonalds

    company operated

    restaurants

    A Revised Proposal for Creating Value

    at McDonalds

    Collects a royalty of 13% of systemwide sales

    Final Revised Proposal.ppt

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    Objective 3: Unlock Shareholder Value atMcDonalds (contd)

    FranchiseReal Estate

    Brand McDonalds

    A Revised Proposal for Creating Value

    at McDonalds

    Collects a royalty of 13% of systemwide sales

    9 World-leading brand

    9 ~ 60% EBITDA Margins (1)

    9 Low maintenance capital requirements

    9 ~ 55% EBITDA maintenance capex margins (1)

    9 Low operating leverage / high earnings

    stability

    9 High ROIC

    9 Low cost of capital

    9 Valuable fixed asset base

    9 50 year track record9 Global and diverse customer base

    There are very fewbusinesses in theworld with all the

    attractive businesscharacteristics ofBrand McDonalds

    ________________________________________________

    (1) Based on Pershings estimates. AssumesMcOpCo pays a market rent and franchisefee.

    .

    Final Revised Proposal.ppt

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    Objective 3: Unlock Shareholder Value atMcDonalds (contd)

    Financial statements are not transparent

    fMcOpCo does not pay an arm's-length rent or franchise fee

    to Brand McDonalds

    fAs such, reported financials do not make apparent that

    approximately 80% of McDonalds EBITDA is derived fromthe higher multiple Brand McDonalds

    f Issuing transparent segment financials for McOpCo and

    Brand McDonalds would demonstrate

    9 True profitability of Brand McDonalds

    9 True operating margins and capital requirements at

    McOpCo

    A Revised Proposal for Creating Value

    at McDonalds

    The first step tounlockingshareholder valueis to introducetransparent

    segment financials.

    Final Revised Proposal.ppt

    Objective 3: Unlock Shareholder Value at

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    Objective 3: Unlock Shareholder Value atMcDonalds (contd)

    2004 Total EBITDA Adjusted forMarket Rent and Franchise Fees

    55%

    2004 Total EBITDAAs Reported

    In 2004, McDonalds company-operated restaurants appeared to contribute 46% of total EBITDA.However, once adjusted for a franchise fee and a market rent fee, McOpCo constituted only 22% of totalEBITDA, with Brand McDonalds contributing 78% of total EBITDA.

    ________________________________________________

    Note: The analysis assumes that 75% of the total G&A is allocated to Brand McDonalds business and 25% is allocated to McOpCo. McDonalds management has indicated this is aconservative assumption regarding Brand McDonalds. Analysis excludes $441 mm of non-recurring other net operating expenses.

    .

    A Revised Proposal for Creating Value

    at McDonalds

    46%

    54%

    McOpCo

    Brand McDonald's

    2004 EBITDA %McOpCo $2.4bn 46%

    Brand McDonald's 2.8bn 54%

    Total $5.2bn 100%

    78%

    22%McOpCo

    Brand McDonald's

    2004 EBITDA %McOpCo $1.1bn 22%

    Brand McDonald's 4.1bn 78%

    Total $5.2bn 100%

    Final Revised Proposal.ppt

    Objective 3: Unlock Shareholder Value at

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    Objective 3: Unlock Shareholder Value atMcDonalds (contd)

    McDonalds is fundamentallyNot a restaurant company

    Why is it valued as such?_________________________________________

    (1) FY05E EBITDA- Maintenance CapEx contribution is based on Pershings estimates. CapEx is net of proceeds from restaurant closings. We note that the Company does not provide

    EBITDA and Maintenance CapEx allocation by segment.

    McDonalds FY 2005EEBITDA Maintenance CapEx, Adjusted for a

    Market Rent and Franchise Fee(1)

    A Revised Proposal for Creating Value

    at McDonalds

    86%


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